Cabo Verde revamps air and maritime transport

Air and maritime transports have long been identified as a major bottleneck for economic growth and development of Cabo Verde. Flying to Lisbon, Portugal, is often cheaper than flying between islands, and moving goods internally is also expensive for local companies. A revamp of air and maritime transports, a priority for the local Government, is finally taking form, but with mixed prospects.

The service provided by Cabo Verde Airlines (TACV) and the inter-island transport were both of low quality and generated losses for the State (in recent years the Treasury has injected around EUR 100 thousand/ day to ensure the operation of TACV). The delay in the privatization of TACV, initially announced by former PM José Maria Neves, worsened the carrier’s situation.

Faced with the inability to find capable and credible partners, the World Bank suggested liquidation of the company, which would entail losses for the State, as well as the firing of 510 workers, including specialized personnel such as pilots and mechanics. But the Government rejected this solution and looked for an international partner.

Following the completion of the restructuring process of the Cabo-verdean carrier, Icelandair subsidiary Loftleidir Icelandic submitted to the Government a binding proposal to acquire 51% of the shares of the carrier. Subsequently, it proposed to use as vehicle for the acquisition its subsidiary Loftleidir Cabo Verde, a company owned 70% by Loftleidir Icelandic EHF, and 30% by Icelandic businessmen in the aviation sector.

The agreement, concluded in March, provides for the sale of 51% of TACV’s capital by Loftleidir Cabo Verde, for EUR 1.3 million. The state will sell another 10% of the capital to workers and emigrants, remaining with 39% of the shares, that will be sold still in 2019, to national and international investors.

To close the deal, the state had to take over TACV’s liabilities, to inject USD 4.6 million to capitalize the new company, as well as provide bank guarantees (USD 26 million) for Loftleidir Cabo Verde to modernize its fleet.

On the eve of the signing of the contract, a last-minute amendment was introduced, which redefined the payment method of sale – in installments, and not upfront, as originally planned.

Of the CVE 143 million (EUR 1.3 million) of the purchase value, the State will only receive CVE 48 million (EUR 435 thousand): EUR 878 thousand correspond to the full settlement of TACV’s debt to Loftleidir Icelandic, related to the management agreement.

The restructuring of TACV and the Cabo Verde Airlines (CVA) solution made it possible to capitalize on the assets (flight and landing licenses at various international airports and other items). The CVA Business Plan, until 2023, foresees the acquisition of 12 airplanes, which could translate into an investment of around EUR 800 million and an increase of 500 employees (200 in the next 3 years).

In order to set up a fund for the settlement of TACV’s liabilities, the Government decided to allocate revenues from 2019 as a result of the management of the airports and Cabo Verde Handling (CV Handling), the privatization of power company Electra and sale of the remaining State holding in TACV. In parallel, Newco was created, a company that will manage the company’s debts and take over the real estate assets of TACV.

The ongoing reform in the transport sector also involves maritime activity, which had problems in connection mainly with islands with less population and economic power (Brava, Maio and San Nicolau).

Given the inability of Cabo Verdean shipowners to ensure regular connections between the islands, an international public tender was launched to select a strategic partner that, through a single concession, will ensure the management and operation of the public maritime transport service for passengers and inter-islands services. The concession was granted in March 2018 to Transinsular (Grupo ETE, Portugal), which will hold 51% of CV Inter-ilhas Transportes Marítimos, SA, the remainder being distributed among local shipowners.

But the concession contract for the public passenger and cargo transport service established with Transinsular does not reflect the concession legislation, nor the contract documents subject to the international tender for this purpose, which established a set of requirements that are difficult to comply with by Cabo Verdean shipowners, including financial and technical conditions.

According to the feasibility study presented by Transinsular, in the first year of the concession, the State will pay EUR 7 million as compensation, above the EUR 3 million announced by Economy Minister José Gonçalves. But over the 20 years of the concession, the annual average will be EUR 4 million, with the state paying c. EUR 92 million during the period. Transinsular expects investments of EUR 10 million, far from the EUR 35 million required in the specifications.

In the proposal, Transinsular group says that the absence of exclusivity penalizes “strongly” the activity of the concessionaire, with repercussions in the operating account. With regard to the characteristics of vessels, which should be less than 15 years old and reach an average speed of 15 knots, Transinsular considers that this imposition of the specifications significantly increases the costs of acquisition, chartering and operation, making it “chronically deficient”, and dependent on state subsidies.

According to our sources, CV Inter-ilhas will have difficulties in starting up with the public service of cargo and passengers, as of August, since it does not yet have boats with the characteristics required in the contract. Local shipowners who have joined the company have obsolete vessels, over 30 years old which, in light of the new legislation, will have to be replaced within 2 years.

In the immediate future, in order to solve the problem of shortage of boats, Transinsular will have to negotiate with Cabo Verde Fast Ferry (CVFF), owner of the ferries “Kriola” and “Liberdadi” and the ship “Praia d’Aguada”. CVFF is the only national company that was left out of the company led by Transinsular and, therefore, intends to remain in the market in competition with the concessionaire of inter-island maritime transport.

The exclusivity, which was originally included in the contract documents for the public passenger and cargo service concession, was eventually withdrawn because of the pressure that the national shipowners exercised on the Government. In this scenario, the subsidiary company of Transinsular will have competition on the most profitable routes, such as the São Vicente-Santo Antão line, which is currently served by 4 boats with daily connections.( CLBrief)

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